As U.S. stock indices return to all-time highs, it’s worth looking back to February of this year when those same indices were correcting. A popular view among academics back then was that the Federal Reserve’s interest rate increases were the source of the market upheaval. Academics wanted us to believe that a central bank vainly trying to influence short lending rates within anachronistic banks drove a correction in the most dynamic markets in the world.

Economist James Dorn made just such an argument at CNN.com. He wrote:

A law of the market is that when interest rates fall, asset prices rise. As long as markets believe the Fed will support asset prices by keeping rates low, stocks will be the investment of choice, rather than conservative, low-yield saving accounts, money market funds, or highly-rated bonds."

If we ignore the happy truth that rates of interest are set by very deep and very global markets, and thus are thankfully not set by central planners at the FOMC, market history rejects every single one of Dorn’s presumptions in the above paragraph. Important here is that one wouldn’t need the market’s retrieval of its losses since February (amid rising rates, no less) to show why this is true.

Simply put, there’s no “law of the market” that says asset prices rise when interest rates fall. As anyone who has ever read the newspaper knows intimately well, such a correlation only exists in the lounges populated by academics. Goodness, the Fed began aggressively cutting rates back in 2001 only for stocks to go on an agonizing slide downward. The central bank was similarly cutting rates with great speed in 2008, only for stocks to rapidly decline.

Better yet, let’s look at Japan. Implicit in Dorn’s embrace of theory over reality is that the Nikkei has been regularly rising since the 1990s in consideration of the Bank of Japan’s close-to-zero rates over the time in question. In reality, the Nikkei Index is trading at a little more than half of what it was in 1989. So unless Dorn thinks Japan’s central bankers were and are incapable of centrally planning market outcomes in the way that Bernanke, Yellen and Powell apparently could and can, he may want to rethink grand pronouncements about stock markets. It’s not a knock on Dorn to say that his aim to explain the infinite decisions that inform equity prices is well beyond his pay grade. As the world’s best traders could have told him, they’re wrong almost as often as they’re right. For Dorn to have believed that he had the answers never made sense.

After that, Dorn presumes that central banks can “support asset prices” by “keeping rates low,” but he has no explanation for why the Fed’s borrowing of $4 trillion in order to buy Treasuries and mortgage bonds in size fashion would in any way boost investor optimism. He doesn’t because there’s no correlation. It’s a total non sequitur. Figure that central bank buying of government bonds would at best subsidize more in the way of the federal government’s mis-allocation of precious resources. As for mortgages, purchases of those would subsidize more of the housing consumption that logically set the economy back before 2008. Markets never price in the present, and always and everywhere price in the future. Why then, would they rally based on the Fed doing what would, if anything, be inimical to positive economic and market outcomes?

Dorn’s answer is that by supposedly “keeping rates low” through the buying of bonds, the Fed is making stocks “the investment of choice, rather than conservative, low-yield saving accounts, money market funds, or highly-rated bonds.” He’s basically arguing that the Fed engineered a “search for yield” through its quantitative easing (QE) policies. The problem is that the Bank of Japan has foisted at least 11 doses of QE on the Japanese economy and markets since 1989, but with no corresponding equity rally. Better yet, Japanese yields across the curve have been lower than what’s prevailed in the U.S. for decades, yet this similarly hasn’t authored any kind of rally.

More important is that Dorn’s theories still don’t work even if we forget that Japan disproves all that he presumes. Indeed, if we believe him that the Fed centrally planned an investor flight to yield by “keeping rates low,” basic logic reminds us that this desire for yield would have driven a rotation out of low-yielding income streams (Dorn can’t seriously believe that the Fed controls the prices of all fixed income instruments? Maybe he does), and into equities. In short, Dorn’s theorizing presumes that fixed income securities substantially corrected from 2009 to early 2018 to reflect the rotation into higher-yielding equities. Except that none of this ever happened. In truth, fixed income yields only seriously corrected in the fall of 2016 after Donald Trump was elected president, and long after QE’s official end. Notable here is that as opposed to this correction sending equities downward as Dorn’s modeling presumes, stocks actually rallied.

Some will be driven to defend Dorn’s theories by arguing that $4 trillion in Fed-created buying power simply overwhelmed supply of equities, thus driving their prices up. The problem with such a view is threefold. First of all, it’s worth reminding readers that for every buyer, there’s always a seller. By definition. For every bullish investor allegedly tricked by the Fed’s actions, there would have to be a bearish seller looking to exit. Second, supply/demand is not the driver of equity prices as is. In truth, equity prices are merely the market’s estimate of all the dollars a company will earn in the future. In that case, Dorn would have us believe that the most sophisticated investors in the world thought the Fed’s hapless meddling would indirectly lead to an ever-improving outlook for corporate earnings? Another non sequitur. Third, while commentators overrate how much companies like Amazon, Alphabet and Apple, Facebook and Microsoft influence the overall direction of markets, the simple truth is that all five corporations have made enormous strides in the 21st century. Together they account for 16% of the S&P 500's total value. Based on Dorn’s theories, investor optimism about the companies mentioned wasn’t really an effect of their innovations as much as central bank focused investors were keeping their eyes on the Fed’s funds rate, along with its bond buying. That's not serious. Worse, it's insulting to the genius of U.S. businesses. It's "You didn't build that," academic edition.

Interesting about the popular academic belief that central banks “support asset prices” is that the same has been said about China. Supposedly the Bank of China’s “easy money” policies have long kept stocks afloat. Except that since January, China’s top index has registered a 23% decline. We also heard that the ECB’s QE policies were keeping European rates of interest artificially low until a correction in Italy disproved that theory. To say otherwise is to presume that the ECB’s central bankers took a day off, China’s several months off, and Japan’s central bankers took decades off. Come on…

Despite being easy to disprove, the simplistic notion that low central bank rates drive up asset prices remains popular. In that case, let’s briefly imagine that what’s ridiculous is in fact true; that the Fed can maintain lofty equity markets by simply “keeping rates low.” If true, as in if the Fed or any central bank could actually engineer rallies, then by basic logic the Fed’s naïve interventions would lead to never-ending bear markets. The reason why is basic, and the best way to understand why is to consider that which we refer to as an “economy.” An economy is just a collection of individuals. Nothing more, nothing less. That it’s just people explains why recessions should always be left alone. Recessions are but a sign of recovery on the way. That’s the case because recessions are merely a signal of what we once again call an “economy” cleansing itself of bad habits developed, misuses of labor, bad investments, and lousy companies. That’s why recessions, when they’re untouched, always lead to economic booms. The recession is the cure that enables the boom.

By extension, a market correction is merely a stock market’s way of fixing mis-allocations of precious resources. Applying the previous paragraph to markets, bear markets are just a signal that markets are cleansing themselves; that poor and marginally good companies are being deprived of precious resources so that they can be directed to better corporations. Implicit in the false notion that central banks can engineer multi-year stock market booms by blithely “keeping rates low” is that investors are so dim as to cheer a scenario whereby the Fed keeps essential resources locked up in the past. Sorry, but that’s really not serious. If the Fed could do as Dorn presumes whereby it could quite literally prop up yesterday, the investor reaction would lead to an investor exodus that would make 1929 and 1987 seem tame by comparison.

To Dorn's credit, he does acknowledge that other policies matter when it comes to healthy markets. What he misses is that markets don’t lie dormant for years and years while not responding to what’s harmful. Rest assured that if the Fed had any kind of ability to prop up equities, the immense harm to markets that the latter presumes would show up in equity indices faster than it took you to read this sentence. Despite this, Dorn wants us to believe that investors were essentially tricked from 2009-2018 by low Fed rates that kept equities fraudulently buoyant. Such a view doesn’t stand up to the most basic of scrutiny. Not even close.